Chicago Firm Acquires Rouse for $7.2 Billion

Development Firm Was an Innovator

Rouse Co., the real estate developer that transformed America's suburban landscape by creating the indoor shopping mall and self-contained communities far from city centers, agreed yesterday to sell itself to a Chicago-based mall owner for $7.2 billion in cash.

The deal, with General Growth Properties Inc., marks the end of a company that turned a vast swath of farms and woodlands in Howard County into the consummate suburban city, Columbia, where Rouse is headquartered to this day. Its sale will thus strip Columbia of one of its major employers and most active philanthropists, and a company whose own history was deeply intertwined with that of the town itself.

The deal also is the end for a company that, under the leadership of its late founder, James W. Rouse, invented or popularized some of the most widespread forms of real estate development of the 20th century, premised on the idea that as the nation's population moved outside of cities, they still needed a community gathering place akin to a village square. The mall food court and urban commercial centers like Baltimore's Inner Harbor owe much of their inspiration to Rouse. Rouse also was one of the first for-profit developers to advocate setting aside a portion of new housing for low-income families, something he did in Columbia.

Rouse Co.'s stock soared 32 percent after the announcement. Anthony W. Deering, the chairman and chief executive of Rouse, said the sale was a good deal for shareholders but also acknowledged the void it will leave in the local community. "Rouse Co. as a unique, local organization will cease to exist, and that's a sad thing," said Deering, who has spent his entire career at Rouse.

In Columbia, local officials were stunned by the news, even as they acknowledged that rumors of Rouse's possible sale have been spread for years. Rouse's involvement in Columbia has gradually diminished from the early years, but its presence is still huge, local officials say. General Growth said it can't yet say how many of the 200 regional Rouse employees will lose their jobs, but two outside analysts predicted that a majority of those working at corporate headquarters will likely be ousted as General Growth seeks cost savings. "Most of the key functions, like leasing, property management and executive functions will transfer to Chicago," said David M. Fick, an analyst at Legg Mason Walker Wood.

Following the acquisition, General Growth, the nation's second-largest mall owner, would own 215 regional shopping malls all over the country, second only to Simon Property Group. Its assets would include local properties Tysons Galleria in McLean and Landmark Mall in Alexandria, both of which it currently owns, and the Mall in Columbia, now owned by Rouse. It will also own land in Columbia earmarked to be sold for further residential development and similar suburban communities outside Las Vegas and Houston.

Some analysts believe that General Growth will ultimately sell off a portfolio of office buildings that Rouse owns in the Baltimore-Washington corridor and Las Vegas. Some also think General Growth will sell or spin off Rouse's business developing suburban communities such as Columbia. General Growth executives said in a conference call that they have little experience developing suburban communities and may seek to sell "non-core" assets.

The transaction came about, said analysts and Rouse executives, because of a sort of paradox. The company has had strong financial results with consumer spending growing, driving up mall rents, and the housing market soaring, pushing up demand for residential lots. For both reasons, Rouse's 2003 earnings were 53 percent higher than in 2000. Its stock price tripled in that time.

Yet Rouse executives saw few strategies that would create the same sort of growth in the years ahead. Its executives saw little demand for more high-end malls. And it seemed unlikely the housing market could improve more than it has in the past few years, and it could very easily get worse, said Deering.

"Residential real estate could be peaking, consumer debt is at a high level, and retail has been strong for the last two years and may or may not stay strong in the future," Deering said, explaining why this is the right time to sell.